All Forum Posts by: David M.

I live in Phoenix, where it is hot.  Like over 100 degrees for six plus months straight.  Not saying this is right, but this is what I did when I wanted a 2nd home / vacation rental in Northern Arizona to get out of the heat.  I cashed out a 401(k).  I had two at the time.  An active one with my employer, and a legacy account from a previous.

I don't remember the numbers, but I paid 39% tax, plus 10% early withdrawal penalty, for the ability to put 15% down on a townhouse in Flagstaff. With only 15%, I still had to pay PMI for several years on top of all of the taxes and fees to get the money. We began to short term rent the townhouse most of the year, except for several summer weeks and one winter week when we would enjoy the property. We made enough income monthly to cover all carrying costs of the property, plus a used Jeep Wrangler 4x4 (for the snowy months).

Here's the kicker. I got a fee appraisal one year later in an effort to refinance out the PMI, however, unfortunately it didn't meet ARV to refi. It did, however, document that the appreciation in one year from purchase (per fee appraisal) plus the income from STR for the first year exceeded the combined taxes and penalties to withdraw the down payment from my 401(k).

The 401(k) is a retirement asset.  If I cash it out and invest it in another long term asset, isn't that still a retirement asset, be it repositioned?  There is certainly much greater risk on a leveraged mortgage rental property than a long position mutual fund account, but based on my age and time to maturity, my portfolio could absorb some risk for greater returns.

I am in no way saying to do what I did. You have to do what's right for you. Especially in evaluating risk, If your guestimate is too risky and you lose everything, there is no do over button. You just lost everything. I just wonder how many who tell you to do a specific approach have done it themselves. I have. Also, I cashed out. If you are doing a loan against your funds, you only have this as your worst case scenario if you bail, not your actual. And if there is equity in the property, a 75% LTV HELOC against that equity might just be enough to write a check to your 401(k) to make it whole in an emergency departure.

Good luck!

P.S. Fast forward three years, the property is now a long term rental (with the PMI expired) cash flowing $600+ per month. RIP Air BNB.

Hi Phoenix BP.  I started out listening to the Podcasts for a few years and lurking online, as I saw another writer post.  I'm trying to get more active on BP with the local community.  I started true real estate investing in 2014 and now have three rentals in AZ.  I even started a website about 4 months ago to support the short term rentals, along with a real estate blog, which is of course cutting edge :)

I need to better understand financing, and how to best secure debt to grow my portfolio.  My only experience has been traditional bank financing thus far, and I think with a stronger financial partner, I could make better inroads in my growth.

I'd love to meet up, share ideas through a message board, whatever works to benefit our local investing community!

In order to contemplate a shortcut, one must first consider the standard expectation.  So let's take a step back and first consider how long it normally takes to be wealthy.  How long is that again?

The whole problem with the $5 sub is, you're portraying yourself as something you're not.  You're in an $80 per plate restaurant, yet your plate is 1/16th the cost of everyone else's.  That sound pretty phony to me.  Either eat what they have, or don't eat, pretty simple really.

I received a ton of information from OpenDoor in fall of 2017 in North Phoenix/Scottsdale area.  They really wanted to buy my primary residence.  As we were going to list it for sale with our conventional broker, I thought just for kicks I'd see what OpenDoor says.  I filled out their entire online questionnaire about my property, and when I submitted it, they said they needed more time and they'd be back in touch.  The next day they told me they just couldn't accurately quote an offer for my house.  The house was walking distance to Kierland/Scottsdale Quarter.  They gladly accepted all of my submitted market data, however, and I'm sure that made it into their algorithm.

I am not a flipper so I don't see competition from these companies directly.  However the companies which concern me are the Blackstones and other private equity firms who have acquired 10s and 10s of 1,000s of single family houses in sunbelt markets.  What kind of inefficiencies are there in a market where institutional investors own whatever alarming percentage of the market they do?  Never mind flipping prices, what could they do to any prices in the market?

@Lander Talbott

Good luck accessing your investment equity! I went through almost the exact same exercise six months ago. A SFR with a long term lease and a first mortgage ~59% LTV. I went with a local affiliate of a national bank, NB Arizona, our local member Zions Bank. They offered 75% LTV, and I think a drive by appraisal so no fee. I'd highly recommend seeing if there is a local Zions affiliate that could assist. Second choice would be any other state or regional bank, who is probably easier to find with than the "too if to fails". Hope this helps.

If you determine your capitalized income value, you can compare that value to your assessment to determine if there is a position to argue for reduction.  The fun part of arguing income as opposed to market is you can argue both your net income calculation (Assessor may overstate) and cap rate (needless to say that is always an argument).  More wiggle room means more negotiation win/win room.  The jurisdiction will generally not consider single family against multi family, but by adding income as an approach to value, it might be just as good.  You can also reference any recent duplex sales in the area that would support your position.  You might check Loopnet for free cap rates in the subject property area for the income approach.  Good luck!

@Tiffany Roberts

Good luck with your rental! I lease a townhouse and purchased the AZ specific BP landlord docs for $99 (I think). I wound up using the included BP tenant app as our initial screener. When I found prospective tenants, I still had a few questions, so I had them use the TransUnion tool that sounds similar to what you described. It was $40 per tenant, but I could pay or ask the tenant to pay.

Maybe a mixed strategy would work for you. A manual app to weed out the wrong choices, and then you could decide to pay or charge the prospects you feel are a match...

I am probably the most undisciplined investor in this thread.  My first investment property was my second house, about six blocks from my primary.  I did a 15 year mortgage to encourage equity accumulation and put 20% down as a true investment property.  I rented for $1,500 per month against a $1,580 monthly payment which includes principal, interest, taxes, and insurance.  To make matters worse and further upset the cash flow investors, I also have a property manager for 8%.

So, you could say, I did a lot wrong with this property.  I've subsidized the mortgage $120 per month for 60 months.  I paid out of pocket for a new air conditioning unit, landscape renovations/repairs, appliance repairs, etc to the tune of about $10,000 in five years.  However, in having the same tenant for four plus years, they've never missed a payment and I've never had a vacancy.  While a vacancy would get me up to market rents (~$2,000 today), I still have $0 vacancy loss in four years at least.  I've paid about $17,200 out of this pocket in five years, or more than $3,000 per year.

However, the last prong is appreciation. I benefited from a fee appraisal last fall that documented 41% appreciation from purchase in about four and a half years. Combined with the dramatic 15 year mortgage pay down, I was able to secure a HELOC for about five times my out of pocket during my time of ownership. Stated another way, the HELOC returned my down payment, closing costs, mortgage supplements, and all repairs improvements in about five years.

The big difference is, this property is in the Kierland area of North Scottsdale, and not Las Vegas.  My concern in your market is the values have still not fully recovered as I understand nor has the inventory fully absorbed.  As such, how long will that take, and what will it look like for you by the time it does?

Good luck, investing is very personal, but the results are very objective.  Make sure the numbers work, and you can afford your worst case scenario.

@Account Closed, thank you for your input.  I use Instagram, but not Facebook.  I'll keep plugging away and see if I can generate the momentum I hope.